Regulated Competition: The Time Has Arrived

Abstract

I 5 choice" proposal in a book entitled Health Plan: The 6' Only Practical Solution to the Soaring Cost of Medical k s Care (z). In the meantime, there has been wide acceptance of health care market strategies as well as tremendous growth in Health Maintenance Organizations (HMOs); but there has been very little done to promote "socially desirable competition" through government regulation (3). Given a choice among (i) direct government delivery of health services, (z) government regulation of private medical prices (rate setting) and the supply of private medical facilities (certificate of need), and (3) competition between private HMOs, as three archetypical methods of rationalizing health services and controlling health care costs, it is our judgment that the last option may be the best for the United States. Competition between HMOs (including staff, group and independent practice models) has a number of features which are very appealing: (i) the delivery of health care remains in the private sector, relatively distanced from bureaucratic and political entanglements; (z) capitation reimbursement provides a financial incentive for cost control; (3) providers of health care have the freedom and flexibility to innovate in services, facilities, equipment and personnel deployment; and (4) consumers have the ability to vote with their feet, keeping the health service delivery system sensitive and responsive to patient concerns. However, all of the potential advantages of HMO competition are for naught if HMOs are geared to maximize profits rather than promoting